Could Supreme Court win backfire for California employers?

Security fencing is seen outside the US Supreme Court in Washington, DC, US, June 14, 2022. REUTERS/Sarah Silbiger

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(Reuters) – On its face, Wednesday’s ruling from the US Supreme Court on a California law that allows workers to assert an array of claims on behalf of the state is a big win for employers.

The court held in Viking River Cruises, Inc v. Moriana that employers can require workers to arbitrate individual claims under California’s Private Attorney General Act, or PAGA, which allows employees to seek statutory damages, on behalf of the state, for labor code violations. The Supreme Court’s 8-1 decision overturned longstanding California precedent that, in effect, allowed workers to evade arbitration of big-money claims for labor code violations that affected workers across the company.

That’s a loss for employees, said Michael Rubin of Altshuler Berzon, one of the firms that represented former Viking River employee Angie Moriana. But the Supreme Court, as I’ll explain, stopped way short of allowing employers to use mandatory arbitration and class action waiver provisions to dodge PAGA claims altogether. And although the court concluded that Moriana would lack standing to pursue other PAGA claims after her own claims went to arbitration, Rubin said he’s confident the justices were wrong about that. According to him, workers should soon be able to resume filing representative PAGA suits alleging company-wide violations, even if they have agreed to arbitrate their individual claims.

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“This may turn out to be one of the shortest-lived Supreme Court victories in history,” Rubin said.

Viking River counsel Paul Clement of Kirkland & Ellis didn’t respond to my email requesting a response to Rubin’s brash prediction. On Wednesday, a lawyer for the US Chamber of Commerce Litigation Center hailed the Supreme Court’s ruling to my Reuters colleague Dan Wiessner. “Trial lawyers can no longer use California PAGA claims to force workers, consumers and businesses into expensive and time-consuming lawsuits,” the Chamber lawyer said.

To understand Rubin’s counterintuitive optimism, you have to look back at what Viking River and its many, many amici from business and trade groups told the Supreme Court about PAGA litigation in California. As I’ve written, employers argued that PAGA suits were, basically, class actions in a very skimpy disguise. It was no accident, they said, that plaintiffs’ lawyers only began filing masses of PAGA suits after the Supreme Court confirmed that employers could require workers to waive their right to litigate or arbitrate as a class.

Viking sought to eviscerate the California law, arguing in its opening brief to the Supreme Court that under the Federal Arbitration Act, employees who have agreed to arbitrate disputes with their employers cannot assert PAGA claims at all. Viking, in other words, wanted the Supreme Court to dismantle California’s entire PAGA scaffolding, in the name of the Federal Arbitration Act.

The Supreme Court did not do that in Wednesday’s decision. In fact, as Rubin pointed out, the court specifically held that PAGA suits are not class actions, as a matter of structure and procedure, and that Supreme Court precedent on the Federal Arbitration Act does not require states to accede to waivers in which plaintiffs surrender the right to bring a representative action.

“The ruling,” Rubin said, “holds that arbitration cannot be used to strip workers of substantive state-court rights. It vastly expands a guarantee for state-law rights to be free from arbitration.” (Interestingly, Chief Justice John Roberts and Justices Amy Coney Barrett and Brett Kavanaugh did not join the part of the opinion discussing the overarching interplay between PAGA and the Federal Arbitration Act.)

Why does any of that matter if employers can nevertheless require workers to arbitrate their individual claims under PAY? Remember, the Supreme Court’s holding is that even if employers can’t wipe out PAGA altogether by requiring workers to waive the right to pursue representative claims, companies can nevertheless enforce mandatory arbitration of employees’ individual claims. (Theoretically, workers could assert the same claims of labor code violations both on their own behalf and, simultaneously, on behalf of California through a PAGA action. In PAGA cases, workers collect 25% of the state’s recovery.)

After all, the power of PAGA actions, for employees and the state, is that these cases agglomerate violations that affected dozens, hundreds or even thousands of workers. That leverage is vastly diminished if employers can force every employee to arbitrate his or her claims individually. And in the Supreme Court’s majority opinion, written by Justice Samuel Alito, the court said that is precisely what will happen in Moriana’s case. PAGA, Alito wrote, does not allow an employee like Moriana to press on with claims based on violations affecting other workers once her own claims have been sheared off for individual arbitration.

But what if Alito is wrong about that interpretation of the California law? Justice Sonia Sotomayor raised such a prospect in her competition in Wednesday’s decision. California courts, she said, will have “the last word” on whether arbitration of a worker’s individual PAGA claim extinguishes the worker’s standing from her to pursue broader claims. Alternatively, Sotomayor said, California lawmakers could amend PAY to assure that workers retain a right to pursue companywide claims even if they must arbitrate their own individual claims.

Rubin told me Sotomayor is exactly right. In fact, he said, the California Supreme Court has already held, in 2020’s Kim v. Reins International California, Inc, that an “aggrieved worker” retains standing to pursue PAGA suits even after settling their individual claims.

The Reins ruling didn’t contemplate a scenario in which a worker’s individual PAGA claims were separated from everyone else’s. But Rubin said the decision reflects the gulf between the constitutional requirements to establish a plaintiff’s right to sue in federal court and California’s much looser standing requirements, which derive from the language of the statute at issue in the case. So even if the Reins case is not controlling precedent on whether PAGA plaintiffs retain standing after their individual claims are pared away, Rubin said, it would be easy for lawmakers to make that fix to the statute.

I’m sure Rubin’s hypothesis will soon be tested, perhaps in Moriana’s case. The Supreme Court remanded the suit, with instructions that non-individual claims her be dismissed, based on its understanding of standing in California law. California courts may have a thing or two to say about that.

Read more:

US Supreme Court deals major blow to California worker class actions

Calif. employers perverting arbitration law, private AG plaintiffs tell SCOTUS

California’s Private AG Act is a scourge, employers tell SCOTUS

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Alison Frankel

Thomson Reuters

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.


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